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  • 1.
    Hjärn, Marcus
    University of Skövde, School of Business.
    Revisorn, etiken och skadeståndsrisken: En fråga om fortlevnad2016Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
    Abstract [en]

    Background: To be an auditor isn´t all about auditing a company´s financial reports, it´s also about being the auditee. The international financial crash in the beginning of this century has created a new and tougher reality for the profession, with an increased litigation risk. To issue or not to issue a going concern opinion is considered to be one of the hardest decisions an auditor has to face. In these situations there are two types of error that can occur: either the auditor doesn´t issue a going concern warning but the company goes bankrupt within a year (type II error), or the auditor issues a going concern warning but the company lives on (type I error). In both cases criticism will come, and the auditor may face huge claims from unsatisfied clients or its stakeholders. From an outsider view this seems problematic, which leads to the following research question: What are the auditor´s ethical thoughts on going concern opinions and the ever-present litigation risk?

    Purpose: The purpose of this paper is that from an ethical perspective describe, analyze and give a deeper understanding of the auditor´s attitude toward going concern opinions and the ever-present litigation risk.

    Method: To be able to fulfill the purpose of the paper and to achieve this deeper understanding, a qualitative method with an abductive approach has been adopted. Interviews have been made with four qualified auditors, on different firms, in different towns in Västra Götalands län (Sweden). Two of these are members of the Big 7 (the seven largest firms in the country) and two belongs to smaller firms.

    Conclusion: The auditor´s attitude toward the litigation risk in the going concern process seems to be relaxed. Although the risk of litigation is an ever-present concern in the back of the auditor´s mind during the auditing process, the majority of the respondents do not see this as a major problem. The reason for this can be related to a generally low litigation risk in Sweden and the fact that none of the auditors in this study has been a victim of a lawsuit. Therefore, in a borderline case and in a true utilitaristic spirit, the auditor tends to see the litigation risk as minimal compared to the damage that a going concern warning can cause the client. The self-fulfilling prophecy, where a warning from the auditor has the potential to provoke a negative market reaction and thereby damage the client, is also a contributing factor. All the respondents consider and respect this effect, which could explain their rather low rate of going concern warnings. The clients characteristics (good or bad) is another important factor that can be crucial when it comes to issuing a warning or not. This indicates a virtue ethics behavior and guides the auditor in the utilitaristic thinking process. Besides this, rigorous risk analysis of a potential client and the people behind it are being made before it will be accepted, and for the auditor there are also internal and external guidelines to follow in a potential lawsuit situation. In the former, this study shows that the characteristics of the client can play an essential part. If these are considered to be negative or “abnormal”, the client will be denied, which is an indication of a virtue ethics behavior.

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